Funding remains a priority for a lot of businesses right now, whether you are cash-rich, in a position to grow, or looking to ease pressure on your finances.
The world of funding can feel overwhelming sometimes, with so many lenders and lending products out there. Here we take a closer look at the common reasons you might take out a loan, along with the specific types of finance that could help you achieve your goals.
Funding may not always be the right option for your business, but with the right planning and advice, it could help propel your growth plans forward. From buying equipment to spreading the cost of a tax bill, read on to learn more about the popular reasons business owners are seeking funding right now…
1. Investing in something new
Over a million businesses took advantage of government-backed CBILS and Bounce Back loans, as the cost of borrowing was low and there were no repayments for a year. As a result, a large number of companies across the UK still have some cash in reserve.
As more industries begin to stabilise and recover, we’re seeing firms with cash in the bank using this opportunity to expand. They might look to hire new staff, purchase a space, add a new service line or something else entirely.
Sector example: Online shopping has gone from strength to strength recently, so e-commerce businesses may be considering investing in stock and equipment.
If you’re a business owner in this sector you might look to take out a business loan or enter into an asset finance agreement, where you could boost capacity without impacting day-to-day cash.
2. Fulfil a big order or contract
Sometimes a big contract can be bittersweet: it’s great to win a new customer, but you may not have the resources to complete the job. In this scenario, you might try and get hold of plant, equipment, and machinery to help you deliver on your new project.
Asset finance is a common solution here, which can mean a range of things. You might look to hire something temporarily or spread the cost of a new item you’ll eventually own outright. With asset refinance, you could even unlock cash in something you already own and borrow against it.
Sector example: Cashflow can be a real challenge for construction companies, due to late payments and hard-to-predict costs, and so it’s common for construction firms to enter into hire purchase agreements, where the cost of an asset is spread over a set period of time like you would with a mortgage.
Equipment leasing is also popular, which is more like renting. With leasing, you have a range of options after the agreed term, such as upgrading to a different model, switching to a new agreement or simply returning the asset.
3. Spread the cost of tax bills
If your year end is 31st March, your corporation tax deadline is 1st January – so you might be starting to think about it. For some businesses corporation tax can be a challenge, as paying in one lump sum can impact cashflow, delay growth plans and divert money away from day-to-day operations.
If you need help with a tax bill, the right funding could help you spread the cost and retain working capital for other activities. You could take out a business loan to spread the cost of your corporation tax, but there are specialist tax lenders out there too who will offer more competitive rates.
Sector example: Conference businesses often require a significant outlay to pay for all the elements of a big event, along with even more expenses in the wake of the pandemic.
For those in this sector, you might choose to reserve existing working capital to fund your event, then go to a specialist lender to take the edge off your corporation tax liabilities.
4. Make existing debt easier to manage
It’s not uncommon for business owners to take on expensive funding during the early years to help get their business off the ground. But as you become more established, you may be able to access a cheaper alternative or get a better deal on your existing debt.
Whether you’re consolidating a number of debts into one more manageable sum or extending your payment period, refinancing could take pressure off your finances. With many businesses starting to pay back their CBILS loans – or about to soon – refinancing to the government’s new Recovery Loan Scheme (RLS) is a popular option.
Sector example: Let’s say you run a recruitment firm which took out a business loan when it first opened, to get hold of the right equipment and cover starting up costs. Now that you’ve been trading for a few years and have a steady amount of cash coming in, you may be able to get a better rate and reduce the cost of borrowing or extend your loan term to reduce your monthly repayments.
5. Cover a cashflow gap
The pandemic is still very much with us, and many firms are feeling the effects of unpaid invoices, supply chain issues and reduced customer demand. In fact, earlier this year businesses were chasing £61bn in late payments.
What’s more, struggling industries like retail and hospitality were less likely to be approved by CBILS lenders, so businesses in these parts of the economy are still at risk. If you’re operating in these sectors and you need funding to tide you through cashflow difficulties, there are a range of options available, like invoice finance, where you borrow against the money you’re owed.
Sector example: Right now, a lot of small retail businesses are waiting to receive money for work they’ve already done, with large high street retailers notorious for paying suppliers late.
In these situations, invoice finance might help release vital cash locked in unpaid invoices. With invoice finance, you can cover a cashflow gap or unexpected bill and keep regular cash coming into your business.
As you can see, there’s a whole host of reasons you might look to take out funding right now. But it’s important to ensure you’re getting the best deal and taking out the right finance for the right reasons.